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Tech firm Powerway seeking rebound

February 5, 2007

People used to expect big things from Powerway Inc. It was once one of Indiana's most promising high-tech success stories.

Now, it has a chance to be that again.

The Indianapolis-based maker of manufacturing quality-control software, which grew like gangbusters in the 1990s and aimed for an initial public offering, has endured a dog of a half-decade. Today, the company has 65 employees--one-fifth the number at its peak.

But that soon could change. Powerway just hired an IT industry turnaround expert as CEO. The company, long backed by venture capitalists, also has refinanced $6 million in bank debt. And it has a plan to attract new customers by aiming beyond the battered U.S. auto industry.

It hopes to parlay a pilot project with Mercedes that began in September into relationships with foreign automakers. Powerway also wants to diversify its software sales into other manufacturing sectors, such as aerospace and defense.

"People that don't work on a day-to-day basis with early-stage companies have this feeling that most companies either take off like a rocket or sputter and flame out like a fizzled firecracker. Of course, a few fall into those categories," Powerway Chairman Tom Hiatt said.

"But many, many more companies, particularly in the early years, grow fitfully. They might take two steps forward, a half a step back and then surge again. It's not uncommon for companies to have an indirect path to success."

Hiatt, who also is co-managing director of Indianapolis-based venture capital firm Centerfield Capital Partners, has been involved with Powerway since its inception in 1987. In January, he hired H. Dave Chambliss to take the company back to basics as its new CEO.

Chambliss replaced William Hagerty and Dave Peterson, a pair of venture capitalists and Powerway investors with Chicago-based Hagerty Peterson & Co. LLC. They served together as co-interim CEOs after auto industry veteran Ted Wozniak stepped down in 2005.

A software veteran and former tight end for Kansas State University's football team, Chambliss said Powerway needs to focus on the "blocking and tackling" of sales and execution. He spent the last two weeks meeting individually with all of Powerway's 45 local employees. Chambliss wants to simplify their playbook.

"Fundamentals in a business don't really change from one business to another. There are certain objectives that need to be met," Chambliss, 53, said. "We need to have all our fundamentals underneath us."

Boom and bust

In October 2000, the late Gov. Frank O'Bannon made Powerway one of his last campaign stops. It was the kind of economic development announcement politicians dream about. In exchange for $53.4 million in city and state incentives, Powerway had promised to add 2,000 jobs to its 250-person work force over the next decade.

It looked like a great bet at the time. After all, Powerway was poised to revolutionize engineering in the U.S. auto industry. Automaker DaimlerChrysler AG had been so impressed with Powerway's software product that it invested $25 million. Ford Motor Corp. and General Motors Corp. soon joined an agreement to roll out the software across their supply chains. Powerway's employment peaked at 318.

Then the Internet bubble burst. And that was just the start. With its fortunes so intimately tied to domestic automakers, Powerway soon struggled along with them. Layoffs became a routine. Then in 2002, Powerway's longtime CEO, Mike Campbell, committed suicide. Three years later, Ford and GM cut ties to Powerway.

"That was a difficult marriage among the big three [automakers]," said Jim Wheeler, an economic development consultant with Greenfield-based Thomas P. Miller and Associates. "The unbundling of that partnership was really what led to the major problems at Powerway."

Today, Powerway's annual revenue is $10 million to $50 million, Hiatt said, declining to be more specific.

Longtime executives who have endured the roller-coaster ride are optimistic better times lie ahead.

Chief Technology Officer Steve Scott said Powerway is well-positioned as customers shift from buying software as a boxed product to accessing it over the Internet and viewing the vendor almost like a consultant. The company sells its software both ways. It released a new Internet version last year.

"Certainly, over the history of the company, we've enjoyed advances in periods of time, and then retrenched our efforts many times as a byproduct of the evolutions in the marketplace and the technologies that we're exploiting," said Scott, a Powerway executive since 1989.

"We're looking at the marketplace today as one that's undergoing another sea change. And we may be just a little bit ahead of it."

Jeb Conrad, who leads Indianapolis economic development for the Indy Partnership, said the company never claimed any of its government incentives since it didn't add the thousands of jobs it had expected.

But there are no hard feelings. Local officials are eager to work with Powerway again if they can help.

That's the difference between Indiana and Silicon Valley, Conrad said.

"If this company was somewhere [else] and they didn't have some kind of huge revenue jump in a short period of time, people would have turned their backs and moved on to something else," he said.

Back in 2000, just one week after his Powerway campaign appearance, O'Bannon made a final whistle stop at Indianapolis-based communications software maker Interactive Intelligence Inc., where he announced another enormous incentives deal in exchange for promises to add thousands of jobs.

Interactive Intelligence also endured years of reduced prospects before it recovered last year. For all of 2006, the publicly traded company's shares rose 358 percent, tops for any Indiana company.

Powerway executives believe a similar turnaround is on the horizon for them.

Wheeler, though, is skeptical.

"Powerway is one of those companies I had really high hopes for. I hope this is the signal of a resurgence of that technology," he said. "But Interactive Intelligence has a very diversified customer base, whereas Powerway is selling to an industry under stress. It makes it more difficult when your customer is in trouble."

New markets

That's exactly why Powerway's new strategy looks beyond U.S. automakers.

The company retains its core relationship with DaimlerChrysler. But now, rather than attempt to corner the U.S. market, Powerway is aiming primarily at overseas growth.

It is in negotiations with Daimler-Chrysler's Stuttgart, Germany-based Mercedes Car Group to expand its pilot project across the subsidiary. Ultimately, that could open doors for sales to the European auto-supply chain. Chambliss also wants to diversify into other types of manufacturing.

The company also has high hopes for China, where it opened an office last year. Peterson likened the Chinese manufacturing sector to America's in the 1950s--growing exponentially, but with few processes standardized.

That gives Powerway the chance to get into China's auto industry on the ground floor and help shape it.

"You have hundreds of original-equipment manufacturers, all of whom are looking to grow and are growing," Peterson said. "It's a very interesting market. The trick is tapping into that growth in a profitable way."

To achieve its worldwide vision, Powerway likely will have to piggyback its software on someone else's, said Thilo Koslowski, vice president and lead automotive analyst for Stamford, Conn.-based technology research firm Gartner Inc.

That's because manufacturers now expect software systems to be integrated, he said. Regardless of how good Powerway's software is, he said, customers won't buy unless it instantly shares information with a manufacturer's other divisions, like operations, finance or marketing.

"It's not going to be easy," Koslowski said. "The market is pretty crowded right now with supply chain solutions."

Hiatt is undeterred. He acknowledged that Powerway's investors have been unusually patient and that 20 years is a lifetime in high technology. But he thinks the company is finally poised to prosper.

In addition to Centerfield, Hagerty Peterson and DaimlerChrysler, investors include local angel investor Rollin Dick, Indianapolis-based Cambridge Ventures, Bloomington-based Command Equity Group, as well as other venture firms based outside the state.

"One is faced with the alternative of throwing up your hands and writing off an investment and saying it just didn't work, or continuing to think innovatively and give the investment a chance to succeed," Hiatt said.

"I do think that the market for any company that has achieved the critical mass that Powerway has achieved now is considerably more attractive than if we had given up and tried to cash in our chips five or 10 years ago."

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